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REG > Corporate Tax > Flashcards

Corporate Tax Flashcards

1
Q

Corporate income tax return form 1120

A 
Gross income -worldwide
(Ordinary deductions)
=Income before "special deductions"
(Charitable cont)
(DRD)
= Taxable income
x tax rate
= Gross tax liability
(Foreign tax credit)
= Net regular tax liability
\+ Personal holding company tax (PHC)
\+ Accumulated earnings tax
\+ AMT
= Total tax liability
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2
Q

Taxable portion of corporate distributions

A

CEP + - + -
AEP - + + -
Tax + net ++ 0

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3
Q

351 exchanges attributes

A

No G/L recognized if cash/prop transferred to corp solely in exchange for stock and immediately after OR(s) in control (80%)

  • Tax free, c/o basis, c/o holding period
  • Gain recognized up to boot received
  • Services excluded from “prop” or less than 80%, tax income at FV of stock, wage exp for corp
  • NO control, taxable to all
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4
Q

Shareholder’s Basis in stock received (351 exchange)

A 
\+ Adj basis of prop transferred
\+ Recognized gain
\+ Cash paid
\+ Liabilities assumed
\+ Transaction costs/fees
( Cash received)
(FV of property received)
(Liabilities transferred)
= Share basis
** If liab > shareholder adj basis in property= gain recognized and share basis goes to zero
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5
Q

Corporation’s basis in property received (351 exchange)

A

+ Adj basis of the property in the hands of the OR

+ Gain recognized by the OR

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6
Q

Treatment of life insurance proceeds on key employee

A
  • If corp the beneficiary, premiums not deductible proceeds not taxable
  • If corp not direct or indirect beneficiary, premiums are deductible
  • COLI benefits exclude from income up to premiums paid (excess would be taxable)
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7
Q

Deductibility of organizational expenses

A

Up to 5,000 in legal/accounting fees to incorporate

  • Reduced by amount that exceeds 50,000
  • Must elect to amortize costs not currently deductible over 180 months. If no election, costs are capitalized and remain until liquidated
  • Costs of issuing, printing, selling stock (incld legal/accounting related to offering securities) are NOT org exp
  • *If org exp are greater than 55,000 then amortize the whole thing!
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8
Q

Salaries and wages deduction on 1120

A

Can only deduct up to 1 million for each 5 top officers
- Entertainment exp for officers etc may be deducted only to the extent they were included in the individuals gross income

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9
Q

G/W, franchises, and trademarks on 1120

A

Amortized over 15 years

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10
Q

DRD rules

A 
Dividends reported fully in gross income
% own       Allowed DRD
< 20%         70%
20-80%      80%
80%+          100% - control
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11
Q

DRD exception and not qualifying

A

Doesn’t qualify for DRD if any..

  1. Dividends from foreign corp
  2. Borrowed money to buy investment
  3. Rec from tax-exempt org
  4. Owned for less than 46 days
    * * Exception if DRD < TI b4 DRD < Dividend, use TI b4 DRD times 70%= DRD (only used for 70 & 80% DRD)
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12
Q

Charitable contributions deductions - C corps

A 
Limit to 10% of income b4 claim deduction (ATI):
Gross income 
(Ordinary deductions)
= Income b4 special deductions (ATI)
(Charity)
(DRD)
(NOL)
(Cap loss carryback)
(DPAD)
= Taxable income
* unused amount carry forward 5 years
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13
Q

Ordinary
1231
Capital

A

Ordinary- current business asset (inventory, AR)
1231 assets- Non current business assets (Truck, land, building) Held less than 1 year, G/L are ordinary. Held more than 1 yr, losses ordinary, gains are LTCG.
Capital- not ordinary or 1231 (non-business asset)
**Cap losses NOT DEDUCTIBLE - only offset cap gains, carryback 3, carryforward 5 (all considered ST)

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14
Q

Nondeductible expenses for corp

A
  • Federal income taxes
  • Govt fine and penalties
  • Costs of issuing stock
  • Lobbying costs
  • Compensation (on over $1 million to top execs)
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15
Q

What is ATI?

A 
Net income
\+ Charitable cont
\+ DRD
\+ NOL carryback
\+ Cap loss carryback
= ATI
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16
Q

Foreign tax credit calc

A 
Foreign income
/ Worldwide income
x US tax liability 
= Foreign tax credit
- Foreign income tax liability
= Amount that can be carried back 1 year and forward 10 years
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17
Q

What are the penalty taxes for corps?

A

Accumulated Earnings Tax (AET)
Personal Holding Company (PHC) Tax
Alternative Minimum Tax (AMT)

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18
Q

Rules for stock redemptions

A

The repurchase of shares from a shareholder are treated as exchanges (cap G/L to shareholder) if AT LEAST one is met:

  • Not equivalent to a dividend
  • Substantially reduces ownership %
  • All shareholder stock redeemed
  • From a non-corporate shareholder in partial liquidation
  • Distribution (redemption) to pay death taxes
19
Q

Rules of terminating the corp in liquidating (Corp and shareholder perspective)

A

Corp:
Liquidating- Ordinary gain (cap if stock), ordinary loss, as if sold (if liab or share assumes liab that’s greater than FV, gain is increased by excess)
* Exception> when sub liquidated into parent, tax free no G/L for either c/o basis
Shareholder:
Liquidating- G/L= money +FV prop rec’v (less liabilities subject to or assumed) minus basis in stock
Basis of prop rec’v is FV on date of dist (if a cap asset in hand of the share, then cap G/L)

20
Q

Rules for business gift deduction

A
  • Limited to $25 per donee, per year. Engraving, gift wrapping, mailing, and delivery charges may be deducted in addition to the $25 per donee, per year.
  • Promotional materials costing $4 or less are considered advertising, not business gifts. Gifts to supervisors and employers are not deductible.
21
Q

C corp must use accrual accounting when..

A

More than $5 million in average sales for 3 year period ending with the tax year

22
Q

Corporate AMT calculation

A 
Regular taxable income
\+/- Adj and preferences (PILE)
=AMTI before ACE adjustment
\+/- Adjusted current earnings, ACE (SLIM)
=AMTI before NOL
- NOL (limit to 90% of AMTI)
= AMTI before exemption
- Exemption
= AMTI
x 20% tax rate
=Tentative minimum tax before foreign tax credit
- Foreign tax credit
= Tentative minimum tax
- Regular tax (less foreign tax credit)
=AMT
23
Q

What are adj and preferences for corp AMT

A

PILE:
Private activity bonds interest (munis)
Installment sales of inventory (diff between accrual and installment when install used for tax)
Long term contract income (calc using % of completion)
Excess depreciation on personal property (use 150% declining balance vs DDB and add back)

24
Q

Compute ACE for corporate AMT

A

SLIM:
Seventy % DRD from unrelated corps
Life Insurance proceeds on death key employee
Muni bond interest (except private activity)
* Diff between ACE and AMTI before ACE multiplied by 75% to determine ACE (each item x 75%)
** Can be negative, but limited to prior positive adj

25
Q

What is the exception to a liquidating distribution?

A

When subsidiary is liquidated into the parent

  • Tax free reorganization
  • No G/L for either parent/sub
  • Carryover basis
26
Q

What is AET?

A

-Excessive RE’s per the IRS (not self-assessed)
-20% tax on undistributed income
-Reduce or eliminate if pay actual dividend, consent div, or PHC
-Safe harbor for man co. is 250,000
Tax income 500
Fed tax liab 100
Safe harbor 250
Allowed to accum 350 (100 + 250)
Max subject to penaly 150 (500 - 350)

27
Q

What is the exemption calculation for corp AMT?

A

40,000 - 25%(AMTI before exemption - 150,000)

  • Once AMTI exceeds 310,000 no exemption
    • Corp is exempt from AMT for 1st tax year and exempt in 2nd year if 1st year gross receipts don’t exceed 5 million
28
Q

Rules of terminating the corp in non-liquidating distribution (Corp and shareholder perspective)

A

Corp: Taxed on gain (cap gain), cannot deduct loss
Share: Ordinary/Dividend income (up to E&P, then return of basis)

29
Q

Section 1244 stock

A

Losses from the sale of small, domestic corp stock (sold directly to share) to be deducted as ordinary losses up to 50,000 (100,000 MFJ). Remaining loss treated as capital subject to 3,000 per year limit

  • If gain, cap gain (Sch D)
  • Applies to first million of stock
  • 5 most recent tax years ending before loss, earned less than 50% on RRI
30
Q

Accrual basis taxpayer can accrue expense if meets both..

A

All-events test: existence of liability is established and amount can be determined w/ reasonable accuracy
Economic performance test: satisfied when prop/services are actually provided
* Wages, bonuses, vacation pay can only be deducted when accrued if paid w/ in 2.5 months of year end

31
Q

When should a Corp make estimated tax payments?

A

15th day of the 4, 6, 9, 12 months of tax year

32
Q

How are property distributions received treated from the shareholders perspective?

A

Recognize the FV minus any liabilities that the shareholder will assume on the asset.
The basis will be the FV of asset received (debt does NOT reduce the basis)

33
Q

What are the merger types for corps?

A 
Type A reorganization is a statutory merger or consolidation. 
Type B reorganization is the use of voting stock of the acquiring corporation to obtain at least 80% of the voting power and at least 80% of each class of nonvoting stock of a target corporation. 
Type F reorganization is a mere change of identity, form, or state of incorporation
34
Q

What section of the tax code contain treatment of C corp

A

300+

35
Q

Does shareholder recognize a gain in a 351 exchange if contributed property and received cash and stock?

A

transfers of appreciated property to a controlled corporation (80%) are tax free to the extent they are exchanged solely in exchange for stock in the corporation. If cash or other property is received, gain is recognized equal to the cash and fair market value of other property received, limited by the amount of appreciation in the property transferred to the corporation (the lesser of cash rec’v or appreciation of contributed prop)

36
Q

Corp distributed property to share in complete liquidation with FV 500 and basis 150 subject to 200 liability. What is the gain to corp?

A

When appreciated property is distributed as part of a complete liquidation, it is treated as if it was sold for its fair value, resulting in a gain. When the distribution is subject to a liability, the gain is increased to the extent that the liability exceeds the fair value of the property. It didn’t in this case so the gain is 500-150=350

37
Q

How to elect to consolidate returns and for how long?

A

An election to file a consolidated return is binding on the current and all future years and may not be changed from year to year on a discretionary basis.

38
Q

When is a gain recognized by a shareholder in 351 exchange of property?

A

If the property transferred is subject to a liability in excess of the basis

39
Q

What is Ultra vires?

A

can be used by a shareholder against a corporation to prohibit the corporation from performing a totally executory contract
* A derivative lawsuit to get company to correct an injustice against the company itself (not the shareholder as that would be a direct lawsuit)

40
Q

The shareholders basis in the stock rec’v in 351 exchange is..

A

Equal to adjusted basis of property transferred plus gain recognized less any net boot received (If debt exceeds c/o basis, then share recognize gain)

41
Q

How do shareholder loans to the c corp affect their basis?

A

It doesn’t at all, only in S corps do loans increase basis (and paying them back decreases basis)

42
Q

For M1 recon, what items are adjusted?

A

Book income
+Fed income tax per books
+Excess cap loss over cap gains
+Income for tax not included in book (prepaids, royalties, etc)
+Expenses for book not deducted for tax (ins proceeds on key EE, business gifts exceed 25, charitable over 10% limitation, expenses incurred for tax exempt income, depreciation methods)
- Income for book not included in tax (muni bond interest, life in proceeds on key EE)
- Expenses for tax not charged against book (DRD, charitable carryover, depreciation methods)
= Income per tax

43
Q

Effect of property dividend to corp

A

Treated as if sold for FV, recognize gain, no loss

Gain= FV - basis (If liab > FV, excess is also a gain)

REG (20 decks)

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